Installment Sale

Installment Sale

by Richard C. Wilson & Family Offices Group Association Team

Family Office Definition: Installment Sale

Installment Sale definition:  An installment sale occurs when the grantor loans an appreciating asset to a grantor trust. No gift taxes apply if the loan terms are at market value, borrower payments are required at least annually, and an interest rate is set at or above the applicable federal rate.  Only outstanding loan amounts (unpaid interest and principal) are included in the grantor’s taxable estate. The borrower (beneficiary) is permitted to keep the apprection of the trust assets. Appreciation on the trust assets (above the interest rate on the loan) is transferred to the beneficiary without paying estate taxes and available to the beneficiary immediately. Typically done with an intentionally defective trust.  The loan and interest payments are not taxable income for the grantor.

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